Contracts and COVID-19

The COVID-19 pandemic, and public and health and government responses to curtail it, have dramatically changed our daily lives.  From school and daycare closures, to all but “essential” businesses shuttering, to cancelled events, the impact has been far-reaching.  These changes implicate legal rights, particularly contractual relationships.  This article identifies and briefly discusses various types of events that have been postponed or cancelled, legal doctrines implicated, and the potential legal rights of persons affected.

Rentals and vacation bookings

Maine’s population swells during the summer months, particularly in coastal areas.  As some municipalities have encouraged out of state residents to self-quarantine or stay away altogether, how and when seasonal businesses and hotels will be re-opened remains to be seen.  The City of Portland has banned short-term rentals through sites like Airbnb.

Weddings

In 2019, the wedding industry in Maine generated nearly $1 billion in the state economy.  As of this writing, the most optimistic projections seek to re-open closed parts of the economy in May.  This author would be surprised if weddings and events go forward as planned in July or August, which would wipe out most of the prime wedding season.

The time and money that goes into planning and putting on a wedding is well-known to those that have planned, organized, or paid for one. From picking a date, sending out invitations, booking a venue, hiring caterers, DJs, entertainment, arranging for the transport and comfort of guests, and renting equipment and wares, there are many contracts for all the needed goods and services. There are potentially dozens of interested parties impacted by the cancellation of a single wedding event.

Races

Spring is a popular season for 5 and 10k races, marathons, and charitable fundraiser events.  Some race organizers have gone forward with “virtual” races in which participants run and share their performance over social media.  Of course, that experience is not quite the same without the energy of the crowds and the satisfaction of a post-run snack. The Boston Marathon has been postponed to September, although under some projections, even that may not be far enough in the future for such a large scale, social event.

Sporting events

The NBA, NHL, and MLB have postponed play indefinitely.  Fans that have tickets, especially season ticket holders, may be looking for refunds, but as of now, the leagues are assuring fans that they will receive credit towards tickets to makeup games.  Third party vendors like StubHub have resisted issuing refunds for games that have not yet been officially cancelled.

Festivals and concerts

Performers and artists spanning musical genres and nationality have cancelled or indefinitely postponed tours.  Like sports leagues, several big-ticket music festivals have not refunded tickets, and largely postponed and rescheduled events.  Some artists have migrated performances online.  A music festival hosted by Willie Nelson was moved online and re-named “Til Further Notice” — an appropriate title given the uncertainty of when an event can be safely rescheduled.

The Law

     1.  The contract

The legal rights of parties to a contract will first be determined by the agreement.  If written, then the terms that the parties agreed to will determine what happens. If there is only an oral agreement, then the analysis depends on what the parties intended and understood to be their agreement, which can be complicated and highly fact-dependent.

Some written contracts have standard (or “boilerplate”) language that covers the possibility that performance may be delayed, cancelled, or allocates risks impairing the value or feasibility of the contract.

     2.  Force Majeure

Force majeure (French for “superior force”) clauses may specifically allocate risk in the event an unexpected event impairs performance. A “force majeure” is defined as “an event or effect that can be neither anticipated nor controlled.  The term includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g. riots, strikes, and wars).”  Black’s Law Dictionary 718 (9th ed. 2009).

COVID-19 the virus is a phenomenon of nature, while the consequences flowing from efforts to control the spread of the virus is an act of people.  Its rise and impact was wholly unexpected by the world. 

     3.  Terms and conditions

In the case of races, sporting events, and concerts, terms and conditions on the ticket or in the registration are the contract. Registrations and ticket vendors have lengthy “Terms and Conditions” that we find ourselves clicking “I accept” as a price of entry.  These terms are generally not negotiable.

If the terms of the contract allow one party to delay performance, or to postpone a ticket or registration, or place risk of cancellation on one party, then this may well control the outcome of a dispute.

More complicated is if the contract is silent on what happens and fails to allocate the risk of an unforeseen event.

     4.  Legal doctrines

Impossibility, Impracticability and Frustration of Purpose

The COVID-19 pandemic is epic and unprecedented.  Because the pandemic and the consequences flowing from it — where performance is impossible or the thing contracted for is no longer needed or useful — the law has several doctrines that could apply. Three doctrines are closely related:

  • Impossibility: a contract may be rendered impossible if an unexpected event prevents performance or delivery of a thing.  If, for example, a venue rented for an event burns to the ground, or a performer becomes incapacitated.
  • Impracticability: impracticability may be asserted as a defense if performance is not literally or technically impossible, but rendered uneconomical or burdensome to an extreme due to some externality like war, embargo, disease, or crop failures.
  • Frustration of purpose: where a contract is neither impossible nor impracticable to perform or carry out, but the fundamental purpose for the parties’ agreement has been frustrated, this doctrine may apply.  A good illustration would be renting tents and 200 chairs for a large wedding ceremony and reception, but the government prohibiting gatherings of 10 or more people.  The vendor can still deliver and set up the tent and chairs, but the performance and things are useless if the guests can’t attend the wedding.

Note that these doctrines may not apply if the parties’ contract allocated the risk of an unforeseen event that impairs the possibility, practicability, or purpose of the agreement.

If your event is or may be cancelled or postponed, you should consult an attorney.

If you have a contract that has or may be affected by COVID-19 and government orders to control its spread, you should consult legal counsel as soon as possible. 

This article is for informational and educational purposes and is not intended to be legal advice. You should consult legal counsel to assess the legal issues specific to your case.  The attorneys at Libby, O’Brien, Kingsley & Champion have extensive experience in contract law.

Keith P. Richard - Attorney

Keith P. Richard
Associate

Keith Richard is an associate attorney admitted in Maine and Massachusetts. Keith represents clients across a range of practice areas, including but not limited to real estate, probate, family law, municipal and land use law, employment law, personal injury, criminal defense, and business law.   He has second-chaired civil jury trials to successful verdicts and argued… Read more »

Tyler J. Smith

Tyler J. Smith
Partner

Tyler’s practice is devoted to appeals, civil litigation, employment law, criminal defense, and defending operating under the influence charges. Before joining the firm in 2012, Tyler was a solo practitioner in Biddeford with a practice focused on criminal defense. After graduating law school, Tyler served as a judicial law clerk with the Maine Superior Court… Read more »